CHICOPEE, Mass. (WWLP)–The stock market saw declines Wednesday as Wall Street weighs the volatility of the Silicon Valley Bank fall out.
Silicon Valley Bank’s closure is sending ripples through the economy. When a bank is flushed with deposits, they invest. AIC economics Professor John Rogers said that’s what Silicon Valley Bank did–focusing money on tech start ups during the pandemic when they saw gains. But that was when interest rates were historically low. So when interest rates go up it can impact typically safe investments, like in bonds.
“The bonds that you own at low interest rates are worth less because you can buy bonds at a higher coupon,” explained Rogers.
Rogers said Silicon Valley Bank wasn’t able to cover withdrawals. However with actions taken by federal leaders over the weekend and the fact that people’s deposits are ensured up to $250-thousand, he feels confident that it’s still safe to use banks.
“The banking system is solid and I think any problems in the banking systems such as occurred of the Silicon Valley are being addressed and the government is ready to do whatever it needs to do to backstop the banks,” Rogers said.
Governor Maura Healey reaffirmed that thought Tuesday saying, “Our regional banks are very, very strong and nationally our core banking systems are very, very strong. We don’t want to see people taking money out or a run on other banks there’s no need for that.”
Inflation still remained at 6 percent with the report coming out Tuesday, which could mean more interest rate hikes ahead.